“The past few decades have not been kind to older people, whether they are ‘retiring’ in poverty or working to survive,” according to Teresa Ghilarducci, a labor economist and professor at the New School for Social Research, an expert on retirement security, and the author of a new book, “Work, Retire, Repeat: The Uncertainty of Retirement in the New Economy.”
“The myth of the happy, healthy older worker obscures a glaring reality: millions of Americans must toil through their elder years just to stay afloat,” she writes. “Needing to work in old age marks our times.”
Nearly half of all families in the United States have no retirement savings, she adds. “This humanitarian and economic crisis is on the boil.”
Read more: Retirement planning: A step-by-step guide
Here’s what she had to say about the broken US retirement system and why working longer is not the solution to financial security at older ages. Edited excerpts:
Kerry Hannon: Teresa, one thing I’ve always loved about your work is that you look at the world from the bottom up. Can you discuss?
Teresa Ghilarducci: I think it’s because I grew up on the bottom. I grew up with a single mother who worked all of my childhood. When you care about working-class life and the security of a household, you land on what people are going to do when they retire. I’ve always looked from the point of view of workers and from the poor because of my personal experience.
In what way is our retirement system broken?
The 40-year experiment with a do-it-yourself model for the American pension system is failing. For instance, the median holding in a retirement account for all workers aged 55–64 is only $15,000, but the average worker needs $600,000 to supplement Social Security and maintain their standard of living. The bottom 50% have nothing but need $300,000; the next 40% have $60,000 but need $600,000; and the top 10% need at least $1 million but have $200,000.
The do-it-yourself model means that workers and their employers can decide whether or not to have a retirement account at work. It’s up to the employer to sponsor a 401(k), and it’s up to the worker to participate in the 401(k).
The worker makes all the decisions, which means they bear all the risk that they haven’t put in enough and when the financial markets don’t give them the returns that they expect.
The system is broken because it depends upon your 25-year-old niece or nephew to start saving 7.6% of their pay every paycheck and leave it there for 42 years and invest it optimally, and then figure out how to take it out. That’s impossible, but that’s what the system demands.
I always advocate that people work as long as they can. On paper, working for a few more years looks good. But you disagree. Elaborate?
Now, work is the new pension.
The assumption is that people, if they work a little bit longer, won’t draw down their 401(k). And they will keep on saving and then they’ll delay claiming Social Security. In reality, people who are lower income or middle class collect their Social Security as soon as they can, at age 62, and don’t save any income from their jobs.
Most older workers do not have any kind of pension. And less than 10% of Americans can wait until age 70 to get the delayed retirement credits.
Very few people are working in their late 60s and 70s for sheer pleasure; more are working because their retirement income is low and unstable. Because of this, policies must be aimed at that majority. And the temperature of excitement about working senior wonders should be dialed down.
Working longer really makes retirement more affordable only because a person has less retirement. It is like making lunch affordable by skipping it.
I challenge the idea that people should work longer to make up for inadequate pensions. All adults should be able to work if they want to, but the conditions and terms of that work matter. Working because you must leads to quite different results in pay, conditions, and dignity than working with a good fallback position.
There’s more to this from an economic standpoint, though, right?
Coaxing elders who do not have pensions to seek work and accept any job they’re offered tilts bargaining power toward employers.
Older workers who have wobbly and inadequate retirement plans have less leverage when looking for jobs and accepting offers. Bad pensions lead to lower bargaining power. Less bargaining power means less pressure on employers to improve hours, wages, and working conditions.
You write that class really matters. Can you pull that apart for us?
If we look at how people are doing in retirement, on average, or how much their 401(k) accounts have grown, it really hides the reality of the state of American retirement income security.
That’s because the average is really being pulled up by the very top 10% who have done wonderfully under our system. They’ve kept their money in their accounts the whole time. They’ve had employers put in generous amounts of money, and they’ve gotten the maximum tax break from the government. They were able to keep their money in when the stock market was low. They were able to buy stocks at the low end and let them build up. And they’ve never had a break in service. So they haven’t had to take money out of their accounts.
They’ve done quite well and are coming into retirement with $1 million to $3 million saved. But for every one of those, there are hundreds of people who had a 401(k) and had to spend it down. There’s hardly anything in it. Or they’ve never had anything at all because they’ve been gig workers, contingent workers, or in industries where employers just don’t provide 401(k)s.
Read more: How much can you contribute to your 401(k) in 2024?
Why is there shame about retirement?
There are pockets in our society where they’re proud to have worked and then been able to afford retirement. But for many of us, we are ashamed about not working. And that contributes to the American style of retirement, which is a continual busyness and a declaration of being busy.
If you can’t afford to retire, it creates more shame, and shame creates depression and inaction, and that makes the problem even worse because then we don’t exhibit some kind of anger and urgency in the ballot box.
Tell us about your ‘Gray New Deal’
We don’t realize how much the federal government is a financial partner to us. We need to support the expansion of Medicare for hearing aids, vision, and long-term care, and we need to make sure more revenue goes into Social Security.
My Gray New Deal has three elements.
You have to secure Social Security. That’s the bedrock of social insurance for the bottom 90% of workers. So, we need to put more revenue into Social Security and stop talking about cutting Social Security. We should not raise the retirement age. We should not tax Social Security benefits more. We should have a Social Security boost, even if $200 a month, just do that.
The second thing we have to do is make sure everybody has access to a retirement plan, a real one. Not ones where you can take money out. And we need to automatically put people in.
The third thing we have to do is really insure the cost of healthcare and long-term care. We have to expand Medicare and lower the Medicare retirement age to 55 or 60 and make it first-payer so that older workers are more attractive to employers.
Lowering the age for Medicare would help older workers pushed out of the labor market afford medical insurance and make it cheaper for employers to employ older workers before they reach Medicare age if it is first-payer insurance.
Any other policy shifts that could help those who need the money to be able to continue to work?
Boosting the minimum wage would help increase compensation for older workers in low-paying food service, retail, and care work. More unions would help improve service work. Aggressively tackling age discrimination would give older workers more bargaining power.
And we really need to create an Older Workers Bureau at the Department of Labor to formulate standards and policies that promote the welfare of older workers, to improve their working conditions and advance their opportunities for profitable employment.
Economists project that over 6 million jobs will likely be added to the US economy by 2026 — and more than 4 million will be filled by workers older than age 55.
That’s a lot of older workers.
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